SHF Holdings, Inc. 10-K

Item 1A. Risk Factors. We are subject to risks and uncertainties that could potentially negatively impact our business, financial conditions, results of operations and cash flows. This section contains a description of certain risks and uncertainties identified by management that could, individually or in combination, harm our business, results of operations, liquidity and financial condition, as well as our financial instruments and our securities. These disclosures reflect the Company’s beliefs and opinions as to factors that could materially and adversely affect the Company and its securities in the future. References to past events are provided by way of example only and are not intended to be a complete listing or a representation as to whether or not such factors have occurred in the past or their likelihood of occurring in the future. In evaluating us and our business and making or continuing an investment in our securities, you should carefully consider the risks described below as well as other information contained in this Form 10-K and any risk factors and uncertainties discussed in our other public filings with the SEC under the caption “Risk Factors.” We may face other risks that are not contained in this Form 10-K, including additional risk that are not presently known, or that we presently deem immaterial. This Form 10-K and the risks discussed below also include forward-looking statements, and our actual results may differ substantially from those discussed in such forward-looking statements. Please refer to the sections in this Form 10-K titled “Cautionary Note Regarding Forward-Looking Statements” for additional information regarding forward-looking statements and “Summary of Risk Factors” for additional information regarding the risks and uncertainties that could potentially negatively impact our business, financial conditions, results of operations and cash flows. Risks Related to the Company’s Business Our revenue has declined significantly in recent periods, and we cannot guarantee that the economics of the Second Amended CAA will fully restore our financial performance. Our loan interest income declined sharply following the First Amended CAA, which reduced our income share to approximately 35%. While the Second Amended CAA, increases our income share to up to 65%, this comes at the cost of an up to 65% loan loss indemnification obligation. As such, we cannot guarantee that the economics of the Second Amended CAA will fully restore our financial performance if we are required to fulfill our indemnification obligations. Our revenue has declined due to account attrition, lower pricing, introduction of money market accounts that share interest earned with the depositor and reduced transaction activity within the cannabis industry. The fees we earn from deposit accounts and transaction activity are directly tied to the number of active CRB accounts, the average balances those accounts maintain, and the volume of transactions processed through our platform. Over recent periods, we have experienced account attrition and lower balances, reflecting broader economic pressures in the U.S. cannabis industry, including reduced wholesale pricing and constrained operator liquidity. These trends reduce both our account fee income and the deposit base on which we earn investment income. We also introduced a money market account that shares the interest earned with depositors, which reduces the average revenue generate d from CRBs . We cannot predict when, or whether, conditions in the cannabis industry will improve, or whether accounts lost to attrition will be replaced by new customers. Volatility in interest rates may adversely affect our revenues, profitability, and competitive position. Our investment income is earned on CRB deposits held at PCCU based on the Interest on Reserve Balances (IORB) paid by the Federal Reserve, which is sensitive to changes in prevailing interest rates and including policy decisions by the Federal Reserve. When interest rates decline, the yield earned on CRB deposits decreases, and when interest rates rise, the yield earned on CRB deposits increases. A sustained low-rate environment could materially reduce our revenues and make it more difficult for us to achieve or maintain profitability. In addition, lower interest rates could reduce the interest rates charged on new loans made to CRB borrowers. Our recurring operating losses and negative cash flows from operations raise substantial doubt about our ability to continue as a going concern. The Company has incurred recurring losses from operations and negative cash flows from operations, including an operating loss of approximately $5.4 million and cash used in operating activities of approximately $3.4 million for the year ended December 31, 2025, which raise substantial doubt about the Company’s ability to continue as a going concern. Management has taken steps to preserve liquidity, including restructuring revenue sharing under the Second Amended CAA to increase the Company’s share of loan program income from approximately 35% to 65%, seeking strategic partnerships, reducing operating expenses, maintaining access to a $150 million ELOC and monitoring its liquidity position. Notwithstanding these measures, there is no assurance that management’s plans will be sufficient to sustain operations, and if the Company is unable to achieve profitability or access adequate capital on acceptable terms, it may be forced to reduce spending, liquidate assets, or curtail operations, any of which could materially harm the Company’s business and financial condition. Furthermore, the independent auditors’ report on our consolidated financial statements for the year ended December 31, 2025 includes an explanatory paragraph that expresses substantial doubt about our ability to continue as a going concern. In addition, our future financial statements may include similar qualifications about our ability to continue as a going concern. Our financial statements were prepared assuming that we will continue as a going concern and do not include any adjustments that may result from the outcome of this uncertainty. See Part II, Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Years ended December 31, 2025 and 2024––Liquidity” and Note 2 to the Company’s consolidated financial statements in this Form 10-K for further details. 22 Risks Related to the Second Amended CAA PCCU’s loan program is substantially dependent on the regulatory restrictions placed on PCCU, which may limit the types, terms, and amounts of loans offered. PCCU is a federally chartered credit union subject to regulation by the National Credit Union Administration. PCCU is subject to regulatory capital requirements, portfolio concentration limits, currently capped at 60% of total assets in CRB-related deposits, and periodic examinations by applicable oversight authorities. If PCCU’s regulators impose more restrictive requirements, reduce its concentration limit, or restrict its ability to make CRB loans, the size and composition of the loan portfolio from which we earn income could be materially reduced. We have no ability to compel PCCU to originate loans or to maintain its current regulatory posture, and changes in PCCU’s regulatory environment could restrict the loan program we depend on for a significant portion of our revenue. The Second Amended CAA reinstates an indemnification obligation of up to 65% of loan loss. Under the Second Amended CAA, we receive up to 65% of loan program income generated by PCCU’s CRB loan portfolio. In exchange, we are obligated to indemnify PCCU for up to 65% of net losses of a default on any loan covered by the Second Amended CAA. This obligation has no maximum dollar limit and covers principal, accrued interest, fees, legal costs, collection costs, and collateral disposition costs, net of any recoveries. As of the date the Second Amended CAA was entered into, the total loan portfolio was approximately $52.1 million, giving us a theoretical maximum indemnification exposure of approximately $33.8 million. If one or more significant loan defaults occur, our indemnification obligations could be substantial and could materially impair our financial condition and ability to operate. See Part II, Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Years ended December 31, 2025 and 2024––Relationship with PCCU.” We are required to maintain sufficient balance sheet resources to support our indemnification obligations under the Second Amended CAA. The Second Amended CAA requires us to certify monthly to PCCU that we maintain adequate liquidity to support our 65% indemnification obligation. While we currently meet this requirement, there is no assurance that we will continue to do so. Our cash position may decline as a result of operating losses, capital expenditures, debt service, or indemnification payments. If we are unable to certify adequate liquidity or if material indemnification claims are made against us, our ability to continue operating could be significantly impaired Our indemnification obligation is unlimited in amount, and our actual losses could exceed our current estimates and our available cash. The indemnification obligation under the Second Amended CAA has no dollar cap. Our ability to satisfy indemnification claims depends entirely on our maintaining sufficient cash and liquidity at the time a claim arises. As of December 31, 2025, we held cash of $6.8 million; however, our cash position may decline due to operating losses, working capital needs, or prior indemnification payments. If we are unable to fund an indemnification claim, PCCU would bear the full loss on the affected loan. Such a failure could severely damage our relationship with PCCU, result in a default under the Second Amended CAA, and jeopardize our ability to continue operating. We are required to maintain sufficient cash and cash equivalents to support our indemnification obligations under the Second Amended CAA. The Second Amended CAA requires us to certify monthly to PCCU that we maintain adequate liquidity to support our 65% indemnification obligation. While we currently meet this requirement, there is no assurance that we will continue to do so. Our cash position may decline as a result of operating losses, capital expenditures, debt service, or indemnification payments. If we are unable to certify adequate liquidity or if material indemnification claims are made against us, our ability to continue operating could be significantly impaired. 23 PCCU retains final loan approval authority and may decline loans that meet our underwriting standards, which could limit our revenue growth. We control the loan origination process and assist with underwriting, risk rating, and credit analysis, for these loans and determine which loan applications are submitted to PCCU for funding. However, PCCU’s loan committee retains final approval authority and may reject loans that we have underwritten and recommended for funding. A pattern of rejections on loans we consider creditworthy could reduce the size of the loan portfolio, limit our loan program income, and constrain our ability to grow revenue under the Second Amended CAA. We cannot compel PCCU to approve any loan we originate, and disagreements over credit standards could adversely affect our relationship with PCCU and our financial results. One borrower represents approximately 18% of the total loan portfolio and carries the second highest risk classification. As of December 31, 2025, one borrower had an outstanding loan balance of approximately $9.3 million, representing approximately 18% of our total CRB loan portfolio. This loan carries the second highest risk rating under the risk rating classification system used in the loan program, and which indicates that collection or liquidation in full is highly questionable, doubtful and improbable, with anticipated losses ranging from 20% to 50% of the outstanding balance. Our 65% indemnification exposure on this single loan could result in a loss to us of between approximately $2.2 million, net of estimated collateral value and $6.1 million, uncollateralized. As of December 31, 2025, the Company has recorded provisions of $0.4 million and $0.3 million in the consolidated balance sheet for financial indemnification liability under ASC 326 and standby guarantee obligations under ASC 460, respectively. The realization of any portion of this loss could materially impair our liquidity and financial condition. The CRB loan portfolio is concentrated entirely in the cannabis industry, and cannabis-specific collateral is subject to significant valuation discounts, legal uncertainties, and a limited buyer pool in a foreclosure or forced sale. All loans in the portfolio we indemnify are made to CRBs. In the event of a default, the primary collateral securing these loans is typically real estate used in cannabis operations. PCCU eliminates the cannabis license premium (sometimes referred to as the “green tax”) from its collateral valuations and applies a further 60% reduction to estimate realizable value in a non-cannabis sale. As a result, the effective collateral value available to offset loan losses in a foreclosure or forced sale is significantly lower than for comparable conventional commercial real estate. This means our actual loss for a given default, and therefore our indemnification payments under the Second Amended CAA, may be materially higher than we currently estimate. Certain provisions in the Second Amended CAA create a direct link between our listing compliance and our revenue. The Second Amended CAA contains a provision that automatically reduces our loan program income share percentage if we determine that our indemnification percentage must be reduced in order to maintain our listing on The Nasdaq Stock Market (“Nasdaq”). In the event of such a determination, our income split percentage will be reduced to match our indemnification percentage, with a retroactive true-up to the immediately preceding quarter that will be settled within ten days of our next filing with the SEC. A reduction in the indemnity percentage would directly reduce our revenue and could signal financial distress to the market. This provision means that a Nasdaq compliance issue could simultaneously impair both our capital markets access and our operating income. The initial fair value measurement of our stand-ready guarantee liability at inception under the Second Amended CAA involves significant estimates and judgment and is subject to material uncertainty. We are required under ASC 460, Guarantees , to recognize the fair value of our stand-ready guarantee obligation at inception. We are finalizing this initial fair value measurement with the assistance of a third-party valuation specialist. This is a Level 3 measurement under the fair value hierarchy, meaning it relies on significant unobservable inputs, including assumed default probabilities, loss given default rates, cannabis-specific collateral discount assumptions, discount rates, and the timing of potential guarantee payments. The fair value of this liability is fixed at inception and released over the remaining term of the Second Amended CAA as we are released from risk. Because this measurement depends entirely on management assumptions and unobservable market inputs, actual results could differ materially from our estimates. Errors in this measurement, or changes in the assumptions used, could result in material charges to our income statement or require restatements of our financial statements. Our ongoing expected financial indemnification liability under the Current Expected Credit Loss (“CECL”) standard (ASC 326) requires quarterly ongoing remeasurement and is subject to material uncertainty. Pursuant to ASC 326, Financial Instruments – Credit Losses , using the CECL methodology, coinciding with the first period in which the Company held financial assets within the scope of the standard. Our financial indemnification liability represents our estimate of 65% of the expected credit losses on the covered loan portfolio under the Second Amended CAA. Unlike our ASC 460 stand-ready guarantee liability, which is fixed at inception, our financial indemnification liability is dynamic and remeasured every quarter to reflect current conditions, forward-looking economic forecasts, updated default probability assumptions, revised loss given default estimates, and changes in collateral values. Because the cannabis commercial real estate lending market has limited historical loss data for reliable statistical calibration, our estimates for financial indemnification liability involve a higher-than-normal degree of management judgment. Changes in these estimates in future periods, including as a result of borrower deterioration, collateral value declines, or changes in economic conditions, could result in material charges to credit loss expense in our income statement. Errors in these measurements could also require restatements of our financial statements. 24 We are dependent on third parties, including PCCU and other service providers, for certain critical services, and disruptions at PCCU would directly and immediately impair our operations. PCCU provides the regulated banking infrastructure on which our entire service model depends. We do not hold a bank or credit union charter and cannot directly offer deposit, lending, or payment services to CRB clients. Operational disruptions at PCCU whether caused by a regulatory action, a cybersecurity incident, a financial stress event, or an operational failure would directly and immediately impair our ability to serve our clients and generate revenue. We have limited ability to transition our operations to an alternative financial institution partner on short notice, and the loss of PCCU’s operational infrastructure for any extended period could be fatal to our business. We are almost entirely dependent on PCCU as our banking partner. Substantially all deposits from our CRB clients are held at PCCU, and substantially all of our revenue is generated through the services we provide under the Second Amended CAA. We currently have no other financial institution partner of comparable scope. The loss of our relationship with PCCU, or a material adverse change to the terms of the CAA, would have a material adverse effect on our business, revenues, and operations. Until we enter into agreements with one or more additional financial institution partners, our ability to grow our client base and diversify our revenue is significantly constrained Loan program income (formerly loan interest income) could decline under the Second Amended CAA if the indemnity reserve would cause our shareholders’ equity to drop below the Nasdaq Listing Requirements to maintain compliance. The Second Amended CAA contains a provision that automatically reduces our loan program income (formerly loan interest income) share percentage if we determine that our indemnification percentage must be reduced in order to maintain our Nasdaq listing. In the event of such a determination, our income split percentage will be reduced to match our indemnification percentage. Any such adjustment in our indemnification obligation would result in a corresponding decrease in the amount of loan program income generated by PCCU’s CRB loan portfolio that we receive pursuant to the Second Amended CAA. The current listing requirement is a minimum of $2.5 million of shareholders’ equity, and if Nasdaq were to increase this requirement such that it exceeded the Company’s balance sheet equity, or the Company’s balance sheet equity decreases below $2.5 million, our loan program income could decline. See “––Risks Related to the Second Amended CAA––Certain provisions in the Second Amended CAA create a direct link between our listing compliance and our revenue.” Risks Related to the Cannabis Industry and Regulatory Environment We have agreements with financial institutions that provide banking services to CRBs, which exposes us to additional liabilities, regulatory compliance costs, and reputational risk. Our business is built on serving an industry that remains illegal under federal law. This creates unique risks that do not apply to service providers operating in conventional industries, including potential federal enforcement actions, heightened regulatory scrutiny of our financial institution partners, difficulty obtaining banking services and insurance, and reputational harm that could affect our ability to attract investors, employees, and customers. Any increase in federal enforcement activity targeting cannabis-related financial services could have an immediate and material adverse effect on our business. Cannabis remains a Schedule I controlled substance under federal law, and changes in federal enforcement policy or the scheduling status of cannabis could affect our business in unpredictable ways. Cannabis is classified as a Schedule I controlled substance under the CSA and is illegal under federal law. While some federal administrations have adopted policies of non-enforcement with respect to state-licensed cannabis operations, those policies can change at any time. Potential federal rescheduling of cannabis from Schedule I to Schedule III, while potentially reducing enforcement risk for CRBs, could also attract new competitors into the cannabis banking market, alter the regulatory framework governing financial institutions that serve CRBs, change the federal tax treatment of CRB operators, or otherwise disrupt the economics of the market we serve. We cannot predict the direction or timing of federal cannabis policy changes or their ultimate effect on our business. The Company, our financial institution customers, and our CRB clients are subject to complex federal and state laws governing financial transactions related to cannabis, which could subject them to legal claims or restrict their activities. Financial institutions that bank cannabis businesses must navigate a complex web of federal and state laws, including the BSA, anti-money laundering requirements, FinCEN guidance on marijuana banking, and various state cannabis regulatory frameworks. Changes in FinCEN guidance, BSA or AML examination standards, or the legal interpretation of applicable statutes could require us, or our financial institution partners, to modify or discontinue certain services to CRB clients. Any such change could materially reduce our revenues and disrupt our operations. State-level regulatory changes, including market saturation, license non-renewals, and changes to cannabis program structures could impair borrower viability and increase the credit risk in the portfolio we indemnify. The viability of CRB borrowers in our loan portfolio depends substantially on conditions in their respective state cannabis markets. Market saturation, the non-renewal of cannabis licenses, adverse changes to state cannabis program structures, or increased state regulation could impair CRB operators’ ability to generate sufficient revenue to service their debt obligations. An increase in default rates among portfolio borrowers would increase the probability that we would be required to fund indemnification payments to PCCU, which could materially impair our financial condition. 25 Because cannabis remains federally illegal, CRB borrowers generally cannot access bankruptcy protections but instead work through the receivership process, which complicates loan workouts and could increase our loss given default. Under the applicable bankruptcy laws, debtors engaged in the cultivation, distribution, or sale of a federally illegal substance are generally ineligible for bankruptcy protection. This means that when a CRB borrower defaults, the workout and collateral recovery process must proceed entirely outside of bankruptcy court, typically through foreclosure, deed-in-lieu arrangements, or negotiated settlements. These processes typically take one to three years and yield lower net recovery proceeds than a bankruptcy-supervised liquidation. The result is that our actual loss for a given default on indemnified loans may be materially higher, and our indemnification payments may arise over a longer timeline with greater uncertainty than would be the case for conventional commercial real estate loans. Service providers to cannabis businesses may be subject to unfavorable U.S. federal income tax treatment, including potential disallowance of ordinary business deductions under Section 280E. Section 280E prohibits deductions for ordinary and necessary business expenses incurred by taxpayers who traffic in Schedule I or Schedule II controlled substances. This provision significantly increases the effective federal income tax rate for CRB operators, reducing their after-tax cash flow and their ability to service debt. Although Section 280E applies directly to CRBs rather than to service providers such as us, the financial burden it places on our borrowers affects their creditworthiness and the credit quality of the loan portfolio we indemnify. Any adverse change in federal tax policy applicable to cannabis-related businesses could further impair the financial condition of our CRB clients. Cannabis businesses may be subject to civil asset forfeiture under federal law, which could result in the loss of collateral securing loans in our portfolio. Federal law permits the seizure and forfeiture of assets used in connection with, or derived from, violations of the CSA. If federal authorities were to seize cannabis-related assets pledged as collateral for loans in the PCCU portfolio, the collateral available to secure repayment would be lost or materially impaired, increasing the risk that we would be required to fund indemnification payments. The risk of civil forfeiture is difficult to predict and is not fully reflected in our current collateral valuations. We may have difficulty enforcing certain of our commercial agreements and contracts related to cannabis-adjacent services. Because cannabis remains federally illegal, certain agreements relating to cannabis industry services may be challenged as unenforceable in federal courts or in states that do not recognize contracts related to federally illegal activities. If any of our material agreements were found to be unenforceable, we could lose the benefit of the relevant contract rights and suffer material financial harm. Because we serve cannabis-related businesses, we may have difficulty obtaining certain insurance coverages, which could expose us to additional financial liability. The cannabis industry’s federal legal status limits access to standard commercial insurance products. Many conventional insurers decline to provide coverage to cannabis-adjacent businesses, and the specialized insurance products that are available often carry higher premiums and more limited coverage terms. Gaps in our insurance program could leave us exposed to uninsured losses including those arising from indemnification claims, litigation, cybersecurity incidents, or errors and omissions that could materially impair our financial condition. The conduct of third parties, including our CRB clients and their financial institution providers, may jeopardize our regulatory compliance and business relationships. Our ability to maintain compliance with applicable laws depends in part on the conduct of the CRBs we serve and the financial institution partners through which we operate. If a CRB client engages in unlicensed activity, money laundering, or other regulatory violations, we could be exposed to regulatory sanctions, reputational harm, or legal liability even if we were unaware of the misconduct. We have what we believe to be effective compliance monitoring procedures in place, but we cannot guarantee that they will detect or prevent all violations by third parties. 26 Directors, officers, employees, and investors who are not U.S. citizens may face cross-border travel restrictions into the United States due to their involvement in the cannabis industry. Individuals who are not U.S. citizens and who are associated with the cannabis industry, including through employment, investment, or service on our board of directors, may be subject to restrictions on entry into the United States. This could limit our ability to attract and retain international talent at the board and management levels and could affect relationships with international investors. These restrictions create practical operational challenges that do not affect companies operating in federally legal industries. We may be subject to marketing and advertising constraints on promoting our services to cannabis-related businesses, which could limit our growth. Restrictions on advertising and marketing to regulated industries, including cannabis, may limit our ability to promote our platform and services to prospective CRB clients or to financial institutions considering offering cannabis banking services. These constraints could slow our ability to grow our client base and expand into new geographic markets, adversely affecting our revenue growth. Risks Related to Nasdaq Listing Compliance Our Common Stock has previously traded below $1.00 per share, and if it were to trade below $1.00 in the future it could create an imminent risk of a Nasdaq minimum bid price deficiency notice. Nasdaq Listing Rule 5550(a)(2) requires that listed companies maintain a minimum closing bid price of at least $1.00 per share. If our Common Stock closes below $1.00 per share for 30 consecutive trading days, Nasdaq will issue a deficiency notice and we will have 180 calendar days to regain compliance. Our stockholders approved a reverse stock split of the outstanding shares of our Common Stock within the range of 2-for-1 to 12-for-1, which our Board could execute proactively before any deficiency notice is issued. However, if a deficiency notice is received before such action is taken, we may be unable to regain compliance through other means within the required timeframe. Failure to regain compliance could ultimately result in the delisting of our Common Stock from Nasdaq. A proposed new Nasdaq rule would delist companies whose market capitalization falls below $5 million for 30 or more consecutive trading days. We are aware of a proposed new Nasdaq rule which was filed with the SEC on January 13, 2026, that would result in mandatory delisting without a cure period if a listed company’s market capitalization is below $5 million for 30 consecutive trading days. The SEC is expected to make a decision on this proposed rule by April 29, 2026. If such a rule is adopted and we fail to satisfy its requirements, our shares could be delisted from Nasdaq, which would have severe adverse consequences for our stockholders and our ability to raise capital. Given that our current stock price and number of shares outstanding as of the date hereof put us below the $5 million requirement, it is possible that we would not be compliant with such a rule at the time of its adoption and could be delisted as soon as 30 trading days after the proposed rule takes effect. A delisting of our Common Stock could materially impair our ability to make future draws under the ELOC. The ELOC requires that, as a condition precedent to each draw, there has been no suspension of trading in, or notice of delisting of, our Common Stock. The ELOC also requires us to use commercially reasonable efforts to maintain the listing and trading of our Common Stock on Nasdaq or another Eligible Market (as defined below). If we receive a final and non-appealable notice that our Common Stock will be delisted from Nasdaq, we are required to promptly seek listing on a market designated as eligible under the ELOC, which includes the Over The Counter Market (OTC), The New York Stock Exchange American, or any nationally recognized successor to any of the foregoing (each, an “Eligible Market”). During any period between a delisting from Nasdaq and the successful listing of our Common Stock on an Eligible Market, we would be unable to satisfy the conditions precedent to make draws under the ELOC. There can be no assurance that we will maintain our Nasdaq listing, or that if delisted, we will be able to obtain listing on an Eligible Market in a timely manner or at all. Any inability to make draws under the ELOC, whether temporary or prolonged, could have a material adverse effect on our business, financial condition and results of operations. Risks Related to Our Capital Structure and Securities The conversion of our Series B Preferred Stock, exercise of Series B Warrants, and future draws under the ELOC could result in substantial dilution to existing holders of our Common Stock. In connection with our September 2025 Recapitalization, we issued 31,052 shares of Series B Preferred Stock and Series B Warrants to purchase approximately 1,999,544 shares of Common Stock. As these instruments are converted or exercised, and as we draw on the ELOC, substantial additional shares of Common Stock will be issued and outstanding. This dilution could depress the market price of our Common Stock, making it harder for existing stockholders to sell their shares at or above their purchase price and potentially triggering further Nasdaq compliance issues. The ELOC is an active financing facility, its pricing and redemption mechanics significantly reduce our net proceeds on each draw and increase dilution to existing stockholders. We have an active ELOC under which we may raise capital by issuing shares of our Common Stock. However, each draw under the ELOC is subject to the satisfaction of certain conditions precedent, including: (i) no material adverse change in our business, operations, properties, or financial condition; (ii) no suspension of trading in, or notice of delisting of, our Common Stock; (iii) our representations and warranties remaining true and correct in all material respects; and (iv) no occurrence of any event that would reasonably be expected to have a material adverse effect on our ability to perform our obligations under the ELOC. Each draw is also priced at 90% of the lowest intraday trade price on the draw date, meaning we do not receive full market value for the shares we issue. Additionally, each draw is subject to a 25% redemption right, under which the Series B investor returns 25% of the gross draw amount to us as a redemption of Series B Preferred Stock, reducing our net cash proceeds. The combined effect of these features means we retain approximately $0.675 of net cash proceeds for every dollar of shares issued at market. To raise $1.00 of net capital, we must issue shares representing approximately $1.48 of gross market value. This structure, together with the conditions precedent described above, increases dilution to existing common stockholders and reduces the effective capacity and reliability of the ELOC as a liquidity source. Our Series B Preferred Stock and Series B Warrants contain anti-dilution and reset provisions that could further dilute common stockholders. The Series B instruments include down-round adjustment provisions and automatic price reset mechanics. The first and final automatic reset has already occurred, resetting the conversion price and exercise price to $1.5528 per share. While no further automatic resets are triggered, the increased share counts resulting from the reset require additional share registration. Additional issuances of Common Stock at prices below the conversion or exercise price, whether under the ELOC or otherwise, may trigger further anti-dilution adjustments, increasing the number of shares issuable to Series B holders and further diluting existing common stockholders. 27 Our Common Stock price may be highly volatile, and stockholders may not be able to sell their shares at or above their purchase price. Our Common Stock has experienced significant price volatility, including extended periods of trading below $1.00 per share. Factors that have contributed, and may continue to contribute, to this volatility include our financial condition and operating results, changes to the terms of our Second Amended CAA, regulatory developments affecting the cannabis industry, Nasdaq compliance notices, limited analyst coverage, low trading volumes, and broader stock market conditions. This volatility makes it difficult for stockholders to predict when, or whether, they will be able to sell their shares at a price they consider acceptable. The soundness of our financial institution customers and partners could adversely affect us. We depend on the financial health and stability of PCCU and any other financial institution partners we may engage with. PCCU is subject to its own regulatory requirements, capital adequacy standards, and examinations by applicable oversight authorities. A regulatory enforcement action against PCCU, a deterioration in PCCU’s financial condition, or a significant adverse event at PCCU could directly and materially impair our ability to provide services to CRB clients, collect fees and interest income, and fund our operations. We have limited ability to anticipate or mitigate risks arising from the financial condition of our banking partners. Our investment in preferred securities of ADTX is illiquid, subject to impairment, and may result in a partial or total loss. We hold an investment in preferred securities of Aditxt, Inc. (“ADTX”), a publicly traded company, with a carrying value of $1.45 million as of December 31, 2025. The investment was received as non-cash consideration in connection with the issuance of our Series B Preferred Stock in September 2025. Because ADTX’s preferred shares are not actively traded and do not have a readily determinable fair value, the investment is measured at cost, less any impairment, adjusted for observable price changes in orderly transactions for identical or similar instruments under ASC 321. We do not have the ability to exercise significant influence or control over ADTX, and we hold less than 20% of its voting interests. Starting April 1, 2026, the Company can convert the ADTX preferred shares into shares of ADTX common stock at a 50% premium to the $1,000 value using a conversion price based on a 20% discount to the trailing five-day volume-weighted average price (VWAP) of ADXT’s common stock, which can be sold Nasdaq in tranches over multiple quarters depending on the average trading volume. Based on the conversion mechanics, the aggregate face value of ADTX’s common stock issuable upon full conversion would exceed the current carrying value of the preferred shares. However, the timing and actual proceeds we realize upon conversion and sale will depend on the trading price and volume of ADTX’s common stock at the time of each transaction. If ADTX’s common stock price declines, trading volume is insufficient to absorb our sales without significant price impact, or ADTX experiences a deterioration in its financial condition or business prospects, we may realize proceeds below our carrying value or be required to recognize an impairment charge, either of which could have a material adverse effect on our consolidated results of operations. Risks Related to Internal Controls and Financial Reporting The Second Amended CAA introduces significant new accounting complexity that involves material judgment and estimation uncertainty. The Second Amended CAA requires us to measure and record a stand-ready guarantee liability at fair value at inception under ASC 460, estimate and recognize an initial financial indemnification liability under ASC 326-20, and account for retroactive revenue recognition as a subsequent event for the period from October 1, 2025 through December 31, 2025. Each of these accounting determinations involve significant estimates and management judgment. Errors in our estimates or judgments could result in material misstatements in our financial statements, which could require restatements, damage investor confidence, and adversely affect our ability to timely file required SEC reports. One material weakness in revenue recognition related to our activity fee income from deposits held at PCCU has been remediated, however sufficient time hasn’t passed for us to conclude that its operating effectively. As of December 31, 2025, the Company had material weaknesses we have identified, one specifically relates to revenue recognition for activity fee income earned on CRB deposits held at PCCU. This weakness has been remediated however sufficient time hasn’t passed for us to conclude that it is operating effectively . There remains a risk that our reported activity fee revenues may be misstated. A misstatement in this revenue category could adversely affect investor confidence in our financial reporting, attract SEC comment or inquiry, and impair our ability to file required periodic reports on a timely basis. See Part II, Item 9A., “Controls and Procedures.” We have identified a material weakness in internal control over financial reporting related to our loan documentation and expected credit loss estimation process, which could result in a material misstatement of our financial statements. During the fourth quarter of 2025, in connection with the Company’s initial recognition of an indemnification liability under the Second Amended CAA, management identified a material weakness in internal control over financial reporting. Specifically, for the first time, the Company was required to measure a stand-ready guarantee liability at fair value under ASC 460 and an expected credit loss liability under ASC 326-20. Both measurements depend on underlying loan documentation maintained as part of the Company’s credit administration responsibilities under the Second Amended CAA. During the audit, certain loan documentation used in connection with these measurements was found to be out of date or inconsistent with the terms of the underlying loans. While management concluded that the indemnification and expected credit loss liabilities which together totaled approximately $3.1 million as of December 31, 2025 are fairly stated as of that date, the absence of a formalized loan documentation review and maintenance process represents a control deficiency. If not remediated, this deficiency could result in a material misstatement of the Company’s indemnification liability under ASC 460 or its expected credit loss liability under ASC 326-20 in future periods. If our financial statements are not accurate, investors may not have a complete understanding of our operations. If we do not file financial statements on a timely basis as required by the SEC, we could face severe consequences. If we are unable to conclude that its internal control over financial reporting is effective, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our Common Stock could decline, and we could be subject to sanctions or investigations by the Nasdaq, the SEC or other regulatory authorities. Moreover, responding to such investigations are likely to consume a significant amount of our management resources and cause us to incur significant legal and accounting expenses. Failure to remedy any material weakness in internal control over financial reporting, or to maintain effective control systems, could also restrict our future access to the capital markets. This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements. Our control over financial reporting will not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected. We cannot assure you that the measures we have taken to date, or any measures we may take in the future, will be sufficient to avoid potential future material weaknesses. See Part II, Item 9A., “Controls and Procedures.” 28 Risks Related to Legal Proceedings and Regulatory Compliance An adverse outcome in litigation to which we are or may become a party could materially and adversely affect us. We are currently a party to a declaratory judgment action pending in a Denver County, Colorado District Court in connection with our acquisition of Rockview Digital Solutions, Inc. d/b/a Abaca (“Abaca”). We cannot predict the timing, outcome, or cost of this litigation. An adverse ruling could result in financial judgments against us, require us to alter our business practices, or damage our reputation. In addition to existing litigation, we may in the future become subject to other legal proceedings in the ordinary course of our business. The cost of defending any litigation, even if we are ultimately successful, could be significant and could divert management attention and resources from our core operations. Changes in laws, regulations, or rules applicable to cannabis banking, financial services, or public company reporting could adversely affect our business and results of operations. We operate at the intersection of cannabis regulation, financial services regulation, and public company reporting requirements, all of which are subject to change. Modifications to FinCEN guidance on cannabis banking, changes in SEC reporting requirements, updates to Nasdaq listing standards, or shifts in state cannabis regulations could require us to make significant operational or compliance changes, incur additional costs, or modify or discontinue certain services. The regulatory environment in which we operate is complex and evolving, and we may not be able to adapt quickly enough to avoid adverse consequences. An interruption in, or breach of security of, our information systems could adversely affect us. We operate a proprietary compliance technology platform that processes sensitive financial and regulatory compliance data for CRB clients and financial institutions. A cyberattack, data breach, ransomware incident, or systems failure affecting our platform, or the platforms or systems of CRB clients or other third parties we are engaged with, could expose us to significant legal liability, regulatory sanctions, reputational harm, and operational disruption. Recovery from a serious cybersecurity incident could be costly and time-consuming, and our insurance coverage for cyber-related losses may be insufficient to fully cover the resulting damages. Our ability to maintain the trust of our clients and financial institution partners depends on the security and reliability of our technology infrastructure. For information on our cybersecurity risk management, strategy and governance, see Part I, Item 1C., “Cybersecurity.” We may suffer uninsured losses or losses in excess of our insurance limits. We carry insurance intended to cover various business risks, but the specialized nature of our cannabis-adjacent business limits our access to certain commercial insurance products. Our insurance policies are subject to coverage exclusions, deductibles, and limits that may be insufficient to fully compensate us for significant losses. In particular, losses arising from indemnification obligations under the Second Amended CAA, professional liability, cyber incidents, or regulatory actions may not be fully covered by our existing policies. Significant uninsured losses could materially impair our financial condition and our ability to continue operating. 29 Risks Related to Our Securities There can be no assurance that we will be able to comply with the continued listing standards of Nasdaq. Nasdaq requires that the trading price of its listed stocks remain above $1.00 in order for stock to remain listed. If a listed stock trades below $1.00 for more than 30 consecutive trading days, then it is subject to delisting from the Nasdaq. In addition, to maintain a listing on Nasdaq, we must satisfy minimum financial and other continued listing requirements and standards, including those regarding director independence and independent committee requirements, minimum stockholders’ equity, and certain corporate governance requirements. If we are unable to satisfy these requirements or standards, we could be subject to delisting, which would have a negative effect on the price of our Common Stock and would impair your ability to sell or purchase our Common Stock when you wish to do so. In the event of a delisting, we would expect to take actions to restore our compliance with the listing requirements, but we can provide no assurance that any such action taken by us would allow our Common Stock to become listed again, stabilize the market price or improve the liquidity of our Common Stock, prevent our Common Stock from dropping below the minimum bid price requirement, or prevent future non-compliance with the listing requirements. The market for our securities has been volatile and may continue to be volatile, which would adversely affect the liquidity and price of our securities. The price of our securities may fluctuate significantly due to the market’s reaction to sales of shares of Common Stock, including those issued to the holders of our convertible preferred stock upon the conversion thereof, and to general market and economic conditions. An active trading market for our securities may never develop or, if developed, it may not be sustained. In addition, the price of our securities can vary due to general economic conditions and forecasts, our general business condition and the release of our financial reports. Additionally, if our securities become delisted from Nasdaq for any reason, and are quoted on the Over-the-Counter Markets, an inter-dealer automated quotation system for equity securities that is not a national securities exchange, the liquidity and price of our securities may be more limited than if we were quoted or listed on Nasdaq or another national securities exchange. You may be unable to sell your securities unless a market can be established or sustained. The Company may issue additional shares of common or preferred stock under the Amended and Restated - 2022 Equity Incentive Plan (the “Equity Incentive Plan” or the “Plan”) or otherwise, any one of which would dilute the interest of the Company’s stockholders and likely present other risks. The Company’s Second Amended and Restated Certificate of Incorporation authorizes the issuance of up to 1,000,000,000 shares of Common Stock and 1,250,000 shares of preferred stock, par value $0.0001 per share. There are currently 995,494,515 unissued shares of Common Stock available for issuance, which amount does not take into account shares reserved for issuance upon exercise of outstanding warrants and stock options. As of April 10, 2026, there were 30,808 shares of Common Stock, 111 shares of Series A Convertible Preferred Stock (“Series A Preferred Stock”) and 31,052 shares of Series B Preferred Stock issued and outstanding and an aggregate of 2,601,374 warrants outstanding. The Purchase Agreement permits the issuance of certain securities, including Common Stock, options and other equity awards, under the Equity Incentive Plan. The Company may issue additional shares of common or preferred stock to under the Equity Incentive Plan or as needed for working capital or other purposes. The issuance of additional shares of common or preferred stock: ● may significantly dilute the equity interest of existing investors; ● may subordinate the rights of holders of Common Stock if preferred stock is issued with rights senior to those afforded the Common Stock; ● could cause a change in control if a substantial number of shares of Common Stock is issued, which may affect, among other things, the Company’s ability to use its net operating loss carry forwards, if any, and could result in the resignation or removal of the Company’s present officers and directors; and ● may adversely affect prevailing market prices for the Common Stock. Our operating results may fluctuate significantly and could fall below the expectations of securities analysts and investors due to seasonality and other factors, some of which are beyond our control, resulting in a decline in our stock price. ● Our operating results may fluctuate significantly because of several factors, including: ● labor availability and costs for hourly and management personnel; ● profitability of our services, especially in new markets and due to seasonal fluctuations; ● changes in interest rates; ● macroeconomic conditions, both nationally and locally; ● negative publicity relating to products we serve; ● changes in consumer preferences and competitive conditions; ● expansion to new markets; and ● fluctuations in commodity prices. 30 If securities or industry analysts do not publish or cease publishing research or reports about the Company, its business, or its market, or if they change their recommendations regarding our Common Stock adversely, then the price and trading volume of the Common Stock could decline. The trading market for our Common Stock may be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market, or our competitors. If any of the analysts who may cover the Company change their recommendation regarding our stock adversely, or provide more favorable relative recommendations about our competitors, the price of our Common Stock would likely decline. If any analyst who may cover the Company were to cease coverage of us or fail to regularly publish reports on it, we could lose visibility in the financial markets, which could cause the stock price or trading volume of our Common Stock to decline. We may be unable to obtain additional financing to fund our operations and growth. We may require financing to fund our operations or growth in future periods. The failure to secure additional financing could have a material adverse effect on the continued development or growth of the Company. Except as otherwise provided for in the ELOC, none of our officers, directors or stockholders is required to provide any financing to us. Anti-takeover provisions contained in our Second Amended and Restated Certificate of Incorporation and Bylaws, as well as provisions of Delaware law, could impair a takeover attempt, which could limit the price investors might be willing to pay in the future for our Common Stock. Our Second Amended and Restated Certificate of Incorporation contains provisions that may discourage unsolicited takeover proposals that stockholders may consider to be in their best interests. We are also subject to anti-takeover provisions under Delaware law, which could delay or prevent a change of control. Together, these provisions may make more difficult the removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities. These provisions include: ● a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders; ● a denial of the right of stockholders to call a special meeting; ● a vote of 66 2/3% required to approve certain amendments to the Second Amended and Restated Certificate of Incorporation and the Bylaws; and ● the designation of Delaware as the exclusive forum for certain disputes. Our Second Amended and Restated Certificate of Incorporation provides that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for certain stockholder litigation matters, which could limit our stockholder’s ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders. Our Second Amended and Restated Certificate of Incorporation provides, to the fullest extent permitted by law, that internal corporate claims may be brought only in the Court of Chancery in the State of Delaware (or, if the Court of Chancery does not have, or declines to accept, jurisdiction, another state court or a federal court located within the State of Delaware). In addition, our Second Amended and Restated Certificate of Incorporation provides that the federal district courts of the United States will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. This forum selection provision does not apply to claims brought to enforce a duty or liability created by the Exchange Act. Any person or entity purchasing or otherwise acquiring or holding any interest in our stock shall be deemed to have notice of and consented to the forum provision in our Second Amended and Restated Certificate of Incorporation. 31 This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, other employees or stockholders, which may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum provision contained in our Second Amended and Restated Certificate of Incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results and financial condition. For example, under the Securities Act, federal courts have concurrent jurisdiction over all suits brought to enforce any duty or liability created by the Securities Act, and investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Accordingly, there is uncertainty as to whether a court would enforce such a forum selection provision as written in connection with claims arising under the Securities Act. The JOBS Act permits “emerging growth companies” like us to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies. We qualify as an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act, as modified by the JOBS Act. As such, we take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies for as long as we continue to be an emerging growth company, including (i) the exemption from the auditor attestation requirements with respect to internal control over financial reporting under Section 404 of SOX, (ii) the exemptions from say-on-pay, say-on-frequency and say-on-golden parachute voting requirements and (iii) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. As a result, our stockholders may not have access to certain information they deem important. We will remain an emerging growth company until the earliest of (a) the last day of the fiscal year (1) following July 28, 2026, the fifth anniversary of our initial public offering (“IPO”), (2) in which we have total annual gross revenue of at least $1.07 billion or (3) in which we are deemed to be a large accelerated filer, which means the market value of our Common Stock, public warrants and public units that is held by non-affiliates exceeds $700 million as of the last business day of our prior second fiscal quarter, and (b) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. We cannot predict if investors will find our Common Stock less attractive if we choose to rely on these exemptions. If some investors find our Common Stock less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our Common Stock and the price of our Common Stock may be more volatile. The Company’s total revenue for the year ended December 31, 2024 was approximately $15.2 million. If the Company expands its business through acquisitions and/or grows revenue organically, we may cease to be an emerging growth company prior to December 31, 2026. In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the exemption from complying with new or revised accounting standards provided in Section 7(a)(2)(B) of the Securities Act as long as we are an emerging growth company. An emerging growth company can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies, but any such election to opt out is irrevocable. We have elected to avail ourselves of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our consolidated financial statements with another public company that is neither an emerging growth company nor an emerging growth company that has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used. If some investors find our Common Stock less attractive as a result of the foregoing, there may be a less active trading market for our Common Stock and more stock price volatility. The Certificate of Designation governing our Series B Preferred Stock contains covenants that may limit our business flexibility. The Certificate of Designation governing our Series B Preferred Stock requires the consent or cooperation of the holders of Series B Preferred Stock for certain corporate actions. If we are unable to obtain such consent or cooperation, these provisions of the Certificate of Designation governing our Series B Preferred Stock could limit our business flexibility or our ability to take, or refrain from taking, certain actions that management may believe would be in the interest of the Company and its stockholders, which could adversely affect our business and results of operations.